IS APEC SUITABLE FOR CURRENCY UNION?

The Asia-Pacific Economic Cooperation (APEC) was established in 1989. APEC member countries are remarkably different from each other in many respects. The traditional optimum currency area (OCA) theory may not be suitable for application to APEC. This paper stresses business cycles and trade intensity, which are included in OCA theory, and considers whether or not the "currency union" is suitable. The paper develops a procedure for applying OCA theory to APEC and examines these criteria while taking into account the endogeneity of these criteria. The result indicates that adopting the dollar for currency union is much more reasonable than adopting the yen.